CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND
OF THE STUDY:
The aim of any business organization
is to regulate the inventory in order to attain effectiveness by meeting the
customer needs. This is to enable the organization meet economically both its
internal and external demand commitments.
However, one of the most topical
functions in most organization in terms of its role and integration into the
overall organizational framework is the material or inventory.
Inventory management is mainly about
identifying the amount and position of the goods that a firm has in their
inventory. It is imperative as it helps to defend the intended course of
production against the chance of running out of important materials or goods.
Management function, in spite of increasing awareness of the importance of
material management in comparism with other business functions such as
production, engineering, finance, marketing, personnel etc.
Some companies have wound up due to
improper and unprofitable philosophies of inventory management. Therefore, it
is wise to employ this medium to review some
literature on this subject and to visit a manufacturing company, so as
to study their techniques of inventory management. However, it is in this regard
that some of the key concepts of materials or inventory management are to be
examined with a view to determining its role in the achievement of overall
corporate objectives. Consequently, the focus of this work is on manufacturing
companies for the role of inventory management on customer satisfaction among
such companies.
The liberalization of markets across
the globe has led to an increase in competition especially among the
manufactured goods and services. (Shafie, 2004, Verstege and Amstel,
1991). The competiveness of companies in the future will largely depend on how
they respond to the needs of the customers at the end of a supply chain better
than their competitors (Hogstron and Grigojev, 2003) pressure is mounting on
firms to reduce their time to market, manage risks in their supply chains,
reduce the total supply chain costs and ensure provision of quality
services to the customers across the globe. By doing so, firms are likely to be
rewarded through an increased market share.
A research carried out by Sheila
(2010), shows that manufacturing firms
such as Bata shoe company, East Africa Breweries (EABL), British American
Tobacco (BAT) have a problem of
inaccurate forecasts mainly because they lack real time inventory information
on customers demand, this has in turn led to late deliveries, inadequate
deliveries and lack of consistency to lack of customer satisfaction and
responsiveness to the market signals. (Daugherty and Autry 1999).
1.2 STATEMENT OF
THE PROBLEMS.
Inventory is the life blood of any
organization. This is because inventory contributes directly to the
profitability of an organization and as such the growth of any organization
depends on its ability to manage its inventory efficiently.
Based on this fact, the following
problems are to be examined by the researcher.
1.
The
inventory management system that can best achieve organization profit objective
and respond to the need of the customers.
2.
The
extent of effective and efficient inventory management can contribute to
organization profitability.
3.
The
best approach of valuing material issues.
4.
The
best way of minimizing acquisition costs, and fraud to achieve economy of
operation.
5.
The
impact of efficient inventory management
on organizational performance.
6.
The
way to improve productivity with a typical inventory management system.
7.
How
material detoriation and wastes can be minimized.
8.
Performance,
efficiency and inventory management on customer satisfaction in a company.
According to Toomey (2000), the ultimate
aim of inventory is to serve the customer. As explained by Viale, (1991), Inventory is a very expensive asset in an
organization, however, this expensive asset can be replaced by inventory
information which is less expensive. Some of the problems facing manufacturing
companies today are ability to provide quality services to the customers whose
root cause lies in poor inventory management (Manjrekax, Bhonsale and kamath,
(2008). The main challenge today among firms in Nigeria is the need to enhance
efficiency while at the same time achieving effectiveness (customer
satisfaction) (Heikila, 2002). However, firms in Nigeria have been accused of
poor inventory management techniques and this has greatly affected their
ability to satisfy their customers (Sheita, 2010, Mutua, 2010). The study
therefore sought to carryout an investigation on the role of inventory
management on customer satisfaction among manufacturing firms (Case study of
Anambra Motor Manufacturing Company (ANAMMCO)
1.3 OBJECTIVES OF THE STUDY
The objective of this study,
inventory management, is to examine the management system that can best achieve
the profitability objective in the area of study. Identifying effective and
efficient inventory management, this can contribute to the organization’s
profitability and customer satisfaction. Determining the best approach of
valuing material issues in the organization. To find out the best way of
minimizing acquisition costs, fraud in the organization to achieve economy of
operation.
The main
objective of the study:
a.
The
general objective of the study is to investigate the role of inventory
management on customer satisfaction among the manufacturing company in Nigeria,
using Anambra Motor Manufacturing Company (ANAMMCO) as a case study.
The specific
objectives of the study were:
1.
To
determine the role of inventory levels on customer satisfaction among the
manufacturing firms in Nigeria.
2.
To
highlight the immense importance of efficient stock management in manufacturing
companies.
3.
Finding
the likely consequence of overstocking and under stocking in the benefit
attributed to having stock at its optimum levels in attaining to customer
satisfaction.
1.4 RESEARCH
QUESTIONS
a.
Does
Manufacturing Company appreciate the importance of efficient inventory
management?
b.
Does
overstocking introduce unnecessary carrying and ordering cost tying up of
capital?
c.
Is
inventory management of any important to a manufacturing company in determining
its role on customer satisfaction?
1.5 STATEMENT OF HYPOTHESES
To test these research questions,
research questions are formulated in order to carry out a research work.
a.
H0:
Efficiency in production is not a function of efficient stock management.
H1: Efficiency in
production is a function of efficient stock management.
b.
H0:
Efficiency inventory management is not a major tool for cost reduction and
increasing profitability.
H1: Efficiency inventory
management is a major tool for cost reduction
and increasing profitability.
c.
H0:
Overstocking and under stocking in manufacturing company does not
have its benefit attributed to having stock at its optimum levels in
attaining to customer satisfaction
H1:
Overstocking and under stocking in manufacturing company have its benefits
attributed to having stock at its optimum levels in attaining to customer satisfaction.
1.6 SIGNIFICANCE
OF THE STUDY.
The research work can be of great
help to those who have little or no knowledge in the manufacturing business. It
will be valuable to people who are interested in the manufacturing business and
want to make it their career.
The study will also help the
management of Anambra Motor Manufacturing Company (ANAMMCO), to appreciate
areas where improvement is needed in her inventory operation so as to boost her
profitability and consequently increase her shareholder’s wealth.
Indeed, this will in no little way
have a favourable effect on the national income of Nigeria, Again, it is hoped
that this work will be of immense use to future researchers.
It is also hoped that by improving
the profitability of these, the study will benefit the economy as a whole. With
good inventory management, firms should avoid plunging their business into
financial and operating difficulties.
1.7 LIMITATIONS
AND DELIMITATION OF THE STUDY.
Inventory
management is a wide area of study, unfortunately, time and financial
constraint or general state of economy, would not allow the researcher to cover
so many organization in different industries, however, the study is limited to
the manufacturing company. The focus is on the selected company, Anambra Motor
Manufacturing Company, Enugu.
Time as a constraint to this
research work, is the most pronounced factor that militates against this work.
The research work however, inter-locked with other academic works of the
researcher such that some important discussions and appointment, which would
have yielded positive result towards
this work, were hindered. The analysis and compilation of this work were done
at the detriment of other activities offered by the research. Consequently, it
should be stated that management staff regards all information concerning the
company as private and exclusive. The researcher for this reasons, was denied
access to certain information and data.
1.8 DEFINITION
OF TERMS.
In this research work, some
technical words which are purely related to be used for easy comprehensive
exploration of this work are given below.
a.
Ordering cost: This usually
consists of clerical cost of preparing a purchase order or production order and
special processing and receiving cost relating to number of order processed.
b.
Carrying cost: This is a
desired rate of return on the investment in inventory and cost of storage.
Breakage obsolesce determination insurance and personal property tax.
c.
Economic order
quantity:
Inventory order quantity is that size of inventory that wins result in minimum
total annual cost at the item in question.
d.
Re-order level: This is the
point of level that automatically higher on new order. It is dependent on
expected usage during lead time.
e.
Lead time: This is the time
lag between the day an order is placed and the day the ordered stock is taken
into stock of the buyer.
f.
Buffer stock or
base stock:
This is the balance of inventories over and above the normal use by the
company. They serve as a cushion or insurance against unforeseen contingencies.
They are helpful when production demand exceed the anticipated level or
delivery date.
g.
Inventory
control: This is an operation of continuously arranging receipts and issues
so that inventory balances are adequate to support the current rate of
consumption, with due regard to economy.
h.
Stock out: This is
associated with a situation where there is no sufficient stock to satisfy the
demand by the customer or when needed by the production department for the
continuous production in order to meet up with the demand of customers. When
sales are lost due to stock- out, the firms profit margin reduces.
i.
Excessive
stocking:
This is the opposite of stock-out. It is a situation where the inventories held
at a time is in excess of the quantities that would have been economically
held. This involves the tying down of capital that would have been economically
employed in other ventures.